Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24
How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - 17th Feb 24
Why Rising Shipping Costs Won't Cause Inflation - 17th Feb 24
Intensive 6 Week Stock Market Elliott Wave Training Course - 17th Feb 24
INFLATION and the Stock Market Trend - 17th Feb 24
GameStop (GME): 88% Shellacking Yet No Lesson Learned - 17th Feb 24
Nick Millican Explains Real Estate Investment in a Changing World - 17th Feb 24
US Stock Market Addicted to Deficit Spending - 7th Feb 24
Stocks Bull Market Commands It All For Now - 7th Feb 24
Financial Markets Narrative Nonsense - 7th Feb 24
Gold Price Long-Term Outlook Could Not Look Better - 7th Feb 24
Stock Market QE4EVER - 7th Feb 24
Learn How to Accumulate and Distribute (Trim) Stock Positions to Maximise Profits - Investing 101 - 5th Feb 24
US Exponential Budget Deficit - 5th Feb 24
Gold Tipping Points That Investors Shouldn’t Miss - 5th Feb 24
Banking Crisis Quietly Brewing - 5th Feb 24
Stock Market Major Market lows by Calendar Month - 4th Feb 24
Gold Price’s Rally is Normal, but Is It Really Bullish? - 4th Feb 24
More Problems in US Regional Banking System: Where There's Fire There's Smoke - 4th Feb 24
New Hints of US Election Year Market Interventions & Turmoil - 4th Feb 24
Watch Consumer Spending to Know When the Fed Will Cut Interest Rates - 4th Feb 24
STOCK MARKET DISCOUNTING EVENTS BIG PICTURE - 31st Jan 24
Blue Skies Ahead As Stock Market Is Expected To Continue Much Higher - 31st Jan 24
What the Stock Market "Fear Index" VIX May Be Signaling - 31st Jan 24
Stock Market Trend Forecast Review - 31st Jan 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Economic Challenges face the Stocks Bull Market

Stock-Markets / Stock Market 2022 Nov 21, 2022 - 09:51 PM GMT

By: Donald_W_Dony

Stock-Markets

One of the biggest challenges that face the continuation of the 14-year economic expansion is inflation. Years of near-zero interest rates, an accommodating Fed, and low unemployment have resulted in the highest inflation rate in 40 years.

To counteract this rapid rise in inflation, the FOMC started increasing the Fed Funds Rate in May. First with small increments and then with four jumbo increases of 75 bps.


The effect on the US yield curve that these rate escalations have achieved is an inverted curve. A short-term inversion of up to 6 weeks is not problematic to the economy. But a prolonged inversion is a different story. 

Currently, the US yield curve has been inverted for 21 weeks (Chart 1). 

Since the 1960s, whenever the curve has been inverted for longer than 6 weeks, a recession and market correction develops. 

The signs of a weakening US economy are already present. Consumer expectations have been steadily declining and are now at a 10-year low. Business confidence (ISM Purchasing Manager) index, is also dropping (Chart 2). Existing home sales have plunged to an 11-year low and the steadily declining US Unemployment Rate, once the results of a decade of near-zero interest rates and an accommodating Fed, is now beginning to rise. The high-tech industry, in particular, is finding this environment challenging. 

Nasdaq is down 31% from its high in January as compared to 18% for the S&P 500 (Chart 3).

But, both indexes have a very similar trading pattern.

The SPX and Nasdaq are locked in a formation of descending rallies. Every rebound this year has been met with increasing selling pressure. Models are pointing to a continuation of these trading patterns with new lows for both indexes in January.  

Bottom line: The steady escalation of interest rates has created an inverted yield curve. The fallout of this prolonged inversion is being felt in the economy and the stock market.  

We expect the recent rally in the S&P 500 and Nasdaq has reached their peak. Investors should expect to see lower levels for both indexes into Q1. 

By Donald W. Dony, FCSI, MFTA
www.technicalspeculator.com

COPYRIGHT © 2022 Donald W. Dony
Donald W. Dony, FCSI, MFTA has been in the investment profession for over 20 years, first as a stock broker in the mid 1980's and then as the principal of D. W. Dony and Associates Inc., a financial consulting firm to present.  He is the editor and publisher of the Technical Speculator, a monthly international investment newsletter, which specializes in major world equity markets, currencies, bonds and interest rates as well as the precious metals markets.   

Donald is also an instructor for the Canadian Securities Institute (CSI). He is often called upon to design technical analysis training programs and to provide teaching to industry professionals on technical analysis at many of Canada's leading brokerage firms.  He is a respected specialist in the area of intermarket and cycle analysis and a frequent speaker at investment conferences.

Mr. Dony is a member of the Canadian Society of Technical Analysts (CSTA) and the International Federation of Technical Analysts (IFTA).

Donald W. Dony Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in